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Europe, Middle East & North Africa
Big Changes for Small Businesses in Armenia
Government Implements Broad, Multifaceted Reform to Business Enabling Environment through World Bank Group Support
57-year-old Ruben Shahmuradyan, who holds a PhD in architecture and heads up a building materials' trade company, has been through a lot of changes during his entrepreneurial career. Yet never has he felt the positive change in the private sector more than over the past two years: "I can say without doubt that the business environment in Armenia has improved a lot." he says.
The achievements of the Armenian government were supported by the Investment Climate Advisory Services of the World Bank Group (IC).
Since the program began in 2009, the country has been able to reduce regulatory barriers to business start-up, operation, and growth in five interlinked areas: starting a business, paying taxes, inspections, trading across borders and dealing with construction permits.The activities are part of IC's strategy in Europe and Central Asia to improve the business environment, especially for small and medium-sized businesses.
The program, supported by donor partners the Austrian Ministry of Finance, the Netherlands Ministry of Foreign Affairs, Luxemburg Ministry of Finance and Consortium of Commercial Promotion of Catalonia, is meant to spur Armenia's economic growth. The results are already visible as Shahmuradyan confirms: "In some ways it is more difficult for my company now to be in the market because there are more companies competing with us. But I am convinced that this is a healthy kind of competition that eventually will be good for all of us. It keeps us on our toes."
The Need for Reform in a Transitional Country
"Armenia does not have any option but to improve its business environment," says Karine Minasyan, Deputy Minister of Economy. The reasons are plenty: apart from its Soviet past still overshadowing many institutions, Armenia is situated in a difficult geopolitical environment. The country is landlocked in the mountains of the Caucasus and lacking abundant natural resources, which limits trade and export opportunities. The only railroad to the Mediterranean Sea passes through Georgia.
Despite these obstacles, the entrepreneurial spirit in Armenia has always been strong. Harry Megerian, the 58-year-old president of a manufacturing company, is a good example. Born in the capital of Yerevan, he left his country more than three decades ago to become a successful businessman in the United States. In 2008, after the financial crisis hit the country hard, he decided to return to Armenia to help create new jobs. He is surprised how the business environment has changed, "Within the last two years significant changes have taken place. I now have time to concentrate on my business and the burdensome regulations do not impede it anymore. We are going in the right direction now."
Key achievements
Launch of the One-Stop Shop
"In the past it took about 10 days and around $500 in unofficial payments to register a business. With the new e-registry, it takes about 10 minutes and costs a fixed fee of $50."
A newly created Web site, business library and accounting center, as well as the presence of other ministerial offices nearby give entrepreneurs the chance to easily get answers to their questions when visiting the one-stop shop.
Improvement of Tax Procedures
In the area of tax legislation, Armenia has shown significant momentum. The number of tax reports to be submitted by employers has been reduced from a monthly to a quarterly basis—4 instead of 12. All taxpayers have the same deadline for filing tax reports, and the number of tax payments for smaller firms was reduced from 13 to 5. VAT payers have the right to file tax invoices electronically and do not have to keep records in the books of shipment.
The positive changes were underscored in a recent Tax Compliance Survey conducted by IC among 1,000 entrepreneurs and business owners in Armenia. The study shows that tax administration and the tax appeal process have improved. Now the government is working on a risk-based tax system as Armen Alaverdyan, Deputy Head of the State Tax Service explains: "Our department is now focusing on analytical work to investigate the risk-criteria of companies in Armenia rather than administering huge amounts of paperwork."
Facilitation of Trading Across Borders
With IC support, customs control procedures for trade have been simplified. It is now much easier for companies to obtain a certificate of origin to export goods, which helps them save time and resources. "Our products get to our partners faster and there is less paperwork required in the export process," says Varsik Nazaryan. "The introduction of the electronic system for customs clearance is saving our company on average more than 60 hours per month in administrative time."
Construction Permitting
Last year in December, I applied to build a 40-square-foot shopping center in Yerevan. My request was approved without any comments. That would never have been possible before the reforms because you would have had to know somebody and convince him of your plan. The approval process could have lasted up to three years."
Inspections Reform
To reduce the burden of inspections on government and businesses, the Armenian government is creating a risk-based-inspections system. The reform is aimed at eliminating overlaps between different inspections agencies and reducing the number of obligatory inspections. A pilot project in the area of fire inspections has just begun.
Moving forward
Armenia is currently ranked 48th in the world on ease of Doing Business. Although this ranking is likely to improve in the coming years, it is "important to understand that the goal of the reforms is not only to increase the overall rating of the country, but to enhance the business enabling environment, which will result in stable economic growth." says Arsen Nazaryan, IFC Armenia Regulatory Simplification-Doing Business Reform Project Manager.
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